Episode 211: Stephan Nicoleau, Managing Director at FullCycle

Today's guest is Stephan Nicoleau, Managing Director at FullCycle.

FullCycle developed a unique investment model, specifically designed to accelerate the deployment of climate-critical technologies. These technologies must exceed their thresholds for carbon return on investment and deliver above market returns on a risk adjusted basis. Stephan leads the firm's capital formation and partnerships, and brings more than a decade of investing and investment advisory experience to the team.

I was excited for this one because FullCycle is interesting. They do both growth stage equity investing and they do project finance and like to get involved early in terms of the first few plants that get built and things like that, which I've heard from many people and founders is a gap and one that's highly additional to help address. We cover a lot in this episode, including Stephan's background and what led him to doing the work that he's doing, FullCycle's model, origin story, and progress to date, as well as their investment approach and how they measure success. We also cover how they think about returns, LP composition, some examples of sectors and companies they have gotten involved with, and what types of resources they bring to bear beyond capital to be helpful to the companies they work with.

Enjoy the show!

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Jason Jacobs: Stephan, welcome to the show.

Stephan Nicolea...: Thanks, Jason.

Jason Jacobs: Uh, well, I'm so glad that you agreed to join us. I have known FullCycle from a distance and I think I did have an early discussion, uh, not before I even had a show with your, with one of your partners, Ibrahim, but never done a deep dive, been super curious to do so. And so when my partner Cody, suggested that you come on the show, I was psyched and I have to throw him under the bus for a minute. He said, "Hey, you should have this guy Stephan on the show, you know, super smart mission aligned, doing interesting work. Also, I think he's got some opinions that you're gonna disagree with."

And, now I can't remember if I asked him and he told me, and I just forget, or if I didn't ask him, but I don't know what those opinions are. So I guess we'll find out as the show goes on, if and what they are. I want to put that out there up front just to kind of grease the skids a little bit.

Stephan Nicolea...: I love it. Well, le- let's get into it. I always say strong opinions, loosely held, but let's, uh, it's always good to have a good debate of ideas. Looking forward to it.

Jason Jacobs: Yeah, and you know, I didn't sleep that much last night and I'm getting over being sick. And, and I, it sounds like you're getting over being sick and so, you know, we each have our, our excuses handy, but no, I'm, I'm really grateful that you're making the time. And I think it's gonna be an awesome discussion.

Stephan Nicolea...: Likewise.

Jason Jacobs: So, with that, let's just start from the top. What is FullCycle?

Stephan Nicolea...: [laughs]. It's l- I like starting from the top. So FullCycle is a fund. We are focused on commercializing climatecritical technologies. So the idea behind what we're doing is, for climate to systems issue, it's an infrastructure issue. It's about where we get our power, how we deal with our waste, where we generate agriculture. The kinds of technologies that we need to commercialize and scale need a little bit of help getting through a bit of a deployment gap.

Jason Jacobs: And when you say that the kinds of technologies that we need to scale for climate overall, or specifically you're seeking those ones out for FullCycle?

Stephan Nicolea...: For climate overall. The universe of sustainable infrastructure is often kind of couched in solar, wind energy transition. That is a big chunk of the world. I'd say it's about 30% of this bigger bucket, but 70% of sustainable infrastructure is kind of a new class of technologies that will help us to decarbonize certain industries and will help us to go in a different direction in terms of where we get certain core inputs to our economy. And so we're really focused on that 70%, the infrastructure that has not yet been fully commercialized, but has the opportunity to do really great things for, for climate, for decarbonization and for the sectors that will be difficult to kind of go away, for things that we're gonna need in our economy, but we're gonna need to be less carbon intensive for us to have a 1.5 degree world.

Jason Jacobs: And, I mean, we'll save the deep dive on FullCycle for later in the discussion, but just, I'll just double click one level down and, and ask, at what point in that technology's development do you typically get involved? And in what ways?

Stephan Nicolea...: Yeah, really good question actually. If there's one thing to zero in on in this moment, it's, it's that. So we like mature technologies. That is to say, very far along the technology readiness scale, have gone through demonstration and pilot phases of their implementation so that it's not a question of whether the technology works, it's a question of, do the economics work everywhere in the world? So we come in kind of bridging from that post-technical validation phase to full commercialization and there's a gap there.

Usually what happens for entrepreneurs is, you raise some early stage capital, you get a, maybe even do a series A, you get a pilot up and you build it. And then you go to the market and the market says, "That's great, kid. Build five more and we'll consider you fully commercialized." And so getting from pilot to commercial installation, number five, six, seven is oftentimes really difficult and a lot of companies die on the vine in that path, in that trajectory.

So, we instead come in in a model that's a little bit different. We partner with the company, we invest in the company, but when we do so, we sign rights of first refusal to build out their project pipeline, typically a billion dollars or more. So we're your partner now in a non-dilutive capacity to go out and actually commercialize the tech and do so in a way that is founder-friendly. I know a lot of folks use that term, but really is founder-friendly, but also allows us to deliver returns to our LPs.

And so we kind of have this, uh, sweet spot. Not all technologies are ready, but when they are, we're, we like to be a good partner to fully commercialize them.

Jason Jacobs: So just to try to throw in some buzzwords here to test my understanding, is it first-of-a-kind project finance?

Stephan Nicolea...: First-of-a-kind project finance, I think it is unique finance. I don't ever wanna say we're the only ones doing the thing that we're doing.

Jason Jacobs: Not first-of-a-kind like your type of capital is the first of a kind for this kind of project finance. I meant more project finance across that chasm of getting that first real plant built.

Stephan Nicolea...: Yeah. So you can consider us in that bucket. So we are looking to be the agent of commercialization and often times, we are funding the first commercial projects for the company.

Jason Jacobs: So [inaudible 00:08:45], Spring Lane, or, but i- in that same kind of general bucket?

Stephan Nicolea...: Yes, except think at, at much bigger scale and projects that are much larger in their implications and their inputs and outputs, and most importantly in their climate impact. So, you know, really thinking at scale for us means, does the technology and... do its economics work everywhere in the world? Can we deploy this on a global basis? And for the first commercial projects, you know, a billion dollars of equity means you're building a few larger scale installations. So, we're trying to do things at commercial and industrial scale in as short a time possible, given the, the issue that we're addressing.

Jason Jacobs: And, and switching gears a bit, Stephan, to talk about your personal journey. I mean, I know that it looks like you kind of grew up in a more traditional finance. I'm curious, you know, was it, was it domain that led you to mission or was it mission that led you to domain? How did these ultimately converge to work in the space that you're in today?

Stephan Nicolea...: You know, you look back at your journey and you go, "I didn't actually see all of these components coming together in, in this way, but I really do feel that everything I experienced professionally at least kind of led up to this moment in a meaningful way." So I started my career, as you mentioned in traditional finance and, but in a kind of unique frame. So we were a small, nimble consultancy that worked within the investment banks, the global banks. So we kind of sat inside on the trading floor. We were up working with the executive teams that at banks like JP Morgan, Barclays Capital, Credit Suisse, and we were helping them build better businesses within the business and to think more holistically and kind of competitively around how they can do better. And impact investing started to come into a lot of the equation, and a lot of the conversations were having.

And so we built a practice that really did quite well in the kind of period of time preceding the global financial crisis. So super interesting tutelage. We scaled a eight-person, small startup based in the UK to be a global firm, 450 employees, 4 offices globally. We had this like startup story in, in a span of three years, really cool, and also worked within the banks in a time where it was almost irrational exuberance of the, you know, early [inaudible 00:11:07], right? It was where, uh, a lot of money was flowing and a lot of new financial products were being innovated.

And then obviously, you know, the wheels came off on the global financial markets and we went through the global financial crisis. And so we were a critical resource for a lot of the banks to figure out how they managed that very difficult road in, in '08 and '09. And so our tutelage was one of scaling a company, but then also really working inside of the institutions that were too big to fail, but were certainly rocking more than just the capital markets.

We sold the business to a subsidiary of S&P. And around that time is when I really started to take interest in impact investing generally. I had seen a lot inside of the banks and realized, you know, finance is a tool. It's a tool of humans who either want to do the extractive, exploitative, or even just deeply capitalistic at all cost things. Or it could be used to really help people lift up communities build in, in a way that's progressive and I wanted to do the latter.

And so I started my own practice and-

Jason Jacobs: Uh, where did that come from, Stephan, that desire to want to do the latter?

Stephan Nicolea...: Yeah, I guess that really has a, an origination story in kind of my background, right? I, I'm the son of two immigrants who came to the U.S. from Haiti as children and just have deep value for, you know, wanting to be in community and, and really wanting to lift people up when you can. It's how I'm wired and so I wanted to align my personal values to the work that I was doing.

And, you know, we built a great practice working with the banks, but I do feel that, you know, our talents could have been used to push those financial institutions to do more for more people and to do it better. And so, you know, I took the opportunity. We had an exit and I took the opportunity to say, "Okay, well, what do I want to do next?"

And I could have done anything. I decided to do a hard thing, which is start my own business, go on the buy side, so work with investors like family offices and start to advise them on how they can start to bridge into this very nebulous, poorly-defined world of impact investing at the time. This was kind of 2009, 2010. You know, the world looked a lot different than it does today. And so we really wanted to build in practice what had just been lightly sketched out in theory, which is, you can do well and do good, and that you don't have to concede financial returns to actually have positive impact. We wanted to prove it. And so we partnered with a few family offices over many years and, and did a lot of deals that demonstrated impact investing opportunities and really started to build SPVs and cohorts around opportunities and kind of just grew an ecosystem of impact investors.

And towards the latter end of that experience, I noticed that a, more of our work was climate-facing or climate-adjacent than anything else, right? It really became the kind of hallmark of the work that we were doing, that we would build into the operations, the investments considerations for emissions, considerations for environmental impact. And that really, that was an eye opener within the eyeopener. So yes, we can do well, we can do good. We can work with investors to help them define and activate their opportunities for impact, but the questions that we are answering, the issues that we were facing, we wanted to do the biggest things possible. And climate came up more often than not as the, the problem that folks wanted to solve, but had the least resources to do so. So we started doing that work almost exclusively, kind of towards the tail end of that experience in the mid teens.

Jason Jacobs: And when you talk about emissions and pollution and communities, are you mostly talking about helping communities defend from some of the byproducts of this pollution? Or are you talking about attacking and actively reducing the emissions footprint overall at the systems level or both in terms of what initially drew you in?

Stephan Nicolea...: Yeah, I mean, so it's hard to... For me anyway, it's hard to divorce those two things, right? I'm a systems thinker, and I think that's where we have the, you know, it's, we're closest to the fulcrum as it were, when you think about the impact that you want to have. So we do, and in FullCycle's a great example of kind of, you know, that thinking and practice. If you implement capital at the systems level, you have a waterfall effect that goes presumably very far. But what drew me in really was the opportunity to think differently about some core economic inputs and core outputs that hadn't really been disrupted or thought differently of in a climate context.

So, thinking about for instance, and I'm sure we'll, we'll get into it more, but waste as an issue that is climate, that is a climate issue. That wasn't part of the climate conversations we were having not but four or five years ago. We just didn't understand that biogenic waste degrading into methane was something so harmful that we had to focus on it more acutely than perhaps other sectors or other areas that also generate methane.

So just thinking at the systems level, elucidated new opportunities, new ways for us to disrupt. And so what got me into it was saying, "Okay, well, if that's one example, what are the other ways we can really start to question our status quo? And is there a different path than the trajectory that we're on that will allow us to more meaningfully have the impact that we're looking for in a timeframe that actually makes the most sense?"

Jason Jacobs: Uh-huh and gosh, I have so many questions coming out of there, but maybe the one I'll ask for starters is just, so if that's how you were feeling coming out of selling your company and then spending your time within the big beast, if you will, what is the FullCycle origin story? And then how did your paths converge?

Stephan Nicolea...: Yeah. Okay. So, so this is a good one. Ibrahim AlHusseini is our CEO, is my partner, you know, in, in so many ways. He has been doing this investing in this work for almost 20 years. So he had a couple of early entrepreneurial exits in his career in the 90s and early 2000s, started a family office and started exclusively investing in technology and climate really for most of the time thereafter.

And so I had come to know his work, his investments, and him personally over time and we saw eye to eye on a couple of things. I think the one idea that really sparked all of us, all of this is that there were no models that we could see that were poised to do the work at scale in a way that would summate to the climate impact we wanted to have. So we saw a lot of little efforts. We saw a lot of individual funding of single startups. All of that was great, right? It's all additive, but it wasn't scalable. And it wasn't the kind of investing that we wanted to do.

And when we came together, you know, I had really, uh, grown to respect the investments that Brahim had made and, and the choices that he made and kind of stewarding this low carbon, this early low carbon transition. He really was an early resource for a lot of companies that needed to succeed that really had transformational tech.

And at the time we had done a lot of work on the capital market side, working with, uh, large investors and, and doing that work. And at the time I had just completed a, what I would call a special project, which was working to bring sustainability efforts and inclusion efforts to the project that had come together in New York city to redevelop LaGuardia airport. So massive municipal scale infrastructure project, a five and a half billion dollar redevelopment of an airport, but a $30 billion ec- economic engine for the county of Queens and for the city of New York, but a project that was designed with very little in environmental plan, in an environmental plan and, and very little in climate considerations for an airport that's at sea level for one of the three major airports, for one of the largest cities in the world. So it just seemed like it needed new thinking.

And we came in and did a lot of that new thinking, disrupted that project a little bit. Thankfully, it's completed today so apologies for anyone who's had the displeasure of flying into the airport [laughs] before then, but that was kind of th- our two realms coming together. So doing great, climate-related technology investing was great on Brahim's side. It obviously gave us a big lens for how you pick and support and in a prioritized fashion go for companies that can have the most impact. And then on my side, it really was around how you bring and amass large amounts of capital to do big projects, the implications for municipal scale infrastructure for communities, and most importantly for climate.

And so when we came together and you can see this, kind of these threads of our experience throughout the model that we are now effectuating in FullCycle, I mean, it really was a blending of our kind of lived experience, our professional experience in this space and us needing to find and not finding a model that could actually allow us to amass a large amount of capital to commercialize technologies in a way that's prioritized.

The key there is prioritization. And so I know we'll talk about more about this in a bit, but for us, the reason it was so important is because of the dimension of time. We fundamentally don't have the time to do all of the things all at once. That ship has now sailed. And so what we're... our status quo, our current conditions are such that we've really gotta prioritize what we invest in, the scale in which we invest in it, and what we commercialize in order, and also in the background, be developing the right kinds of technologies to come into the commercialization realm and be fully commercialized when they can, in a way that allows us to most effectively get off this current trajectory to a, a very deeply warming, uh, world.

Jason Jacobs: Can you walk us through the FullCycle model? What is it and how does it work?

Stephan Nicolea...: Sure. There's a couple of key elements I can say. So first is, as I mentioned earlier, partner with companies that have proven technology. Make sure that the tech is maturing, that the teams are of the highest quality, that they're capable and ready for commercialization.

The second is that the technology itself at full deployment. So when you map it to its serviceable market, you have the opportunity to abate, draw down or avert a gigaton or more of emissions. Stick a pin in that for a second, because there's a key there that isn't unlocked for how we see the world a bit differently.

The third is that the company has pre-developed projects. They've went out and, to the world and, and kind of sited and looked at where they could build out their potential projects. They have potential commercial partners, off-takers, feed stock providers. The way we underwrite is that we can really see the technology rollout and implement into existing value chains and existing industries and that the company has done a lot of that work. So they've gotta come to us with a lot of pre-development in place so we can really visualize what it looks like for us to deploy at scale.

And the fourth is, that we don't have to concede on financial returns, that we actually on a project basis, can generate the kinds of returns that we want on a see. And so those four screen, streams give us a more well-defined universe of what we should and can be working with in our model.

The two other pieces I'll center on here, because they're important on the emissions front. So it's not just about the abatement of CO2. It really is about understanding, the more high-impact greenhouse gases, like methane nitrous oxide, and refrigerants, identifying where in our global economy they're being emitted in abundance and then understanding from timeframe perspective, their impact in a timeframe that matters.

So most of the data that you and I read, including this most recent IPCC report, although it makes mention of this time disparity, all of that data is based on the global warming potential on a 100-year basis of those molecules, what happens to a methane molecule over 100 years. But in a hundred years, you're not really getting an accurate snapshot of the problem. And so we shrunk everything down to rely more acutely on what's called GWP20. So the 20-year basis and, on what happens for that molecule as it declines in the atmosphere. And on a 20-year basis, you get a different snapshot and you see methane as a, a problem that's 86 times more impactful than CO2, not 20 times more impactful than CO2. And so when you get an accurate snapshot, you can then start to reorder and map solutions more effectively, more accurately and then that gives us a roadmap for what we want to be looking for in the market.

Really, we have a different way of seeing the world because we took the time to understand the science more deeply and then go out and devise and, and build an investment thesis off the back of it. That allows us to perhaps, I wanna say hunt, but to operate and to invest in realms a little bit differently than most funds. And so it's a key differentiator, but it also allows us to really be comfortable with how we see the world, how we deploy capital, you know, and do so in a way that we know is the most high impact per dollar invested.

Jason Jacobs: And in terms of making those assessments and doing that work, how big is your internal team? What kind of skill sets you have around the table? And are you relying purely on internal resource to come to those conclusions? Or are you leaning on external partners as well? And if so, what do those look like?

Stephan Nicolea...: Yeah, so it's a good question. We have a lot of core capabilities in-house, in our team, but this team has been built really to effectuate this strategy, right? And so of course, we have tons of experience as investors. We have a lot of experience in the capital markets, um, but we also have experience as operators, as asset managers, as project developers who focus on cycle time reduction, how quickly can we get the infrastructure built? And so we really, you know, we come to this as a team that is purpose-built for a model that is purpose-built for a problem.

That said, we have really deep third party relationships that help us to understand, validate, question, score technologies. You know, we make no presumptions to know everything. There is so much innovation happening in this space that you've really gotta be on your toes and understand how things can evolve in your hands over time. And so, you know, we've got partnerships with tons of universities, with the TNO, which is a technology center out of the Netherlands, one of the leaders in, in European understanding around energy waste circularity. So we've got a lot of tethers to the market to understand technologies where we don't have that capacity and we wanna make no presumptions about what we understand and, and know to be true. We are really cognizant that the world is changing really fast and so we just wanna stay up with it and have the resources to do so.

Jason Jacobs: Uh-huh. And so do you have predefined sectors that you are going after? And, and also, when you make an investment, is it typical that you go out and talk to everybody first? Or I guess how much do you boil the ocean? Maybe that's a bad analogy given that this a climate discuss, but how much you dig in a sector before you pull the trigger typically?

Stephan Nicolea...: Yeah. So this is another way I'd say we're a bit differentiated. So we don't invest by sector. We actually invest by molecule. And of course that puts you into certain sectors and so it's kind of a roundabout way to getting to certain buckets where of course, you see a lot of the same folks doing this work, but I think it's a, a key differentiator for us because we really do want to be most effective, even if it means we're doing unsexy things. So there's a lot of really inspiring, almost Star Trek level technology that you and I get to see every day and get to look at, but we really do want to make sure that this technology is, and the capital that's needed for it is right-sized to the impact it can have on the problem.

So, when we think about methane, for example, we are of course thinking about decarbonizing certain industries, but we should also be thinking about waste. We should also be thinking about ag and how we deploy solutions to give both relief to our current agricultural sector and allow regeneration to happen on land that doesn't need to be producing. And so by looking at the molecule and the molecular kind of emissions, and especially for those high-impact gases, it gives us again, a new framework for where we could and should be deploying for maximal impact.

Of course, we always wanna align that climate impact for financial return. We're a fund so we want our investors to be happy. And more importantly, we want to be able to galvanize the trillions of dollars necessary to lead this transition by demonstrating to the capital markets that this is the best possible way to be investing into real assets, into asset classes that, you know, have the opportunity to deliver returns and also have high impact and are worthy of the trillions of dollars, right? It's the only way we get the capital markets to deploy that kind of capital is to just demonstrate that there's real opportunity here. It's in fact, the greatest opportunity maybe of our lifetime of, of humanity, right? It's this... everything needs to be transitioned and we're really thrilled to lead that charge and to demonstrate that it's doable and doable at scale.

Jason Jacobs: And structurally, how does the business model work and how is it similar or different to traditional project finance?

Stephan Nicolea...: So structurally, we are a fund vehicle, an LP. And I think the, the key differentiator, the thing that structurally is different for us is, that we invest both in companies and in projects out of the same vehicle, at least the first commercial projects out of the same vehicles. So we take kind of late stage venture, early stage growth risk with companies. We typically take at least minority control position in the company. We, you know, wanna sit on the board partner with management. And of course, because we're looking at projects, we're a little bit more of an intimate partner for those companies, but the key is that we're not deploying all of our capital onto their balance sheet for them to the go, then go ahead and, and fund those first commercial projects.

You get kind of weird dynamics and a lot of dilution when you do that to founders, because they might have an innovation. You know, there might be rai- they might be raising money at a $25 million premoney valuation, but have a $50 million project to build. And if they're building that off balance sheet, the things start to get a little wonky.

So our model is to then at the time of investment, understand what it will cost, and then build that into the, the rights of first refusal that we negotiate to then build out those projects. So we understand what it means to invest at cost. We lock that in, and then we go out with the company and say, "Okay, as you need to develop projects, we're your capital partner for equity capital." For the project, that typically unlocks a lot for the company, both in their ability to develop for their ability to bring financing to projects and ultimately to have commercial partners that, you know, want to see a, a partner like FullCycle at the table, kind of, you know, as a backstop for their ability to develop.

Jason Jacobs: Uh-huh. And I've heard you say in, in previous interviews, uh, a couple things, one, that you, your capital is, is founder-friendly, and then two, that given your close partnership, you know, more than just capital, you can push these companies on things like impact and diversity and inclusion. So it'd be great to just maybe double click on both of those. In what ways is it founder-friendly and how does that work? And then same question around how you're pushing them both in terms of what you're pushing them on, but also structurally how that manifests.

Stephan Nicolea...: Yeah. So for founders, especially in this, in this sector, in this realm, there's some unique issues that we wanted to be cognizant of and also wanted to be helpful for. So the first we talked about a little bit, which is kind of that second valley of death that a lot of companies walk through to get to commercialization. That's the hardest issue that founders face and it's the one that we wanted to solve most acutely. You know, what we have found is that when we walk through our portfolio, I'll kind of point to some of these examples where, you know, this is actually what helps us to win deals. To participate in opportunities, really being a partner to entrepreneurs along this really tough journey of commercialization has a high value. And so, you know, we let, we like to let our, our founders and the folks that our potential founders in our portfolio really know where we come from, that this is meant to ease the path of commercialization.

But I think it goes well beyond that, because the needs of commercialization of technologies is really around kind of, do you have the industry relationships to go out and build with folks who will be the off-takers for your product, for your value that you're creating, right? Are you plugged into the value chain of the industry that you're seeking to decarbonize? Because ultimately you're gonna have to build in those auspices, right? You're gonna have to build in a sector that may or may, or may not have been, you know, disrupted in this way.

And so we really do come in with, you know, deep academic understanding principles around DEIJ and inclusion and understanding how you build, uh, forward a team that looks like the constituents that you are serving and population that will be the beneficiary of the work, and then really kind of building into their operations, their practices, the relationships that are necessary to make all of that go. And so being this one-stop shop, ecosystem builder around our companies has meant a lot of growth, has meant acceleration of their technologies, has meant a reduction in time for how they get to commercialization and has meant, you know, the, the prospect for even greater success, by virtue of building more high quality, income-producing projects that actually decarbonize and have a high climate effect that we'd like to see.

On the DEIJ side, you know, and then on the inclusion side, you know, I think there's, you know, some core principles that we bring to bear that I think really matter for how this next chapter will go. So if we are not thinking about how we build forward and in whose service we do so, and most importantly, how you build teams that have eyes up on what it will take to develop more equitably, we risk kind of repeating some of the mistakes that we've made in the past in kind of where we built, for instance, power infrastructure or major infrastructure in communities, typically, underserved black and brown communities that didn't have a choice or the agency to say, "Please don't build that here. It's polluting our environment."

So, we have to understand that intersections of both policy, our history and the charge to build new infrastructure, all in one kind of realm to say, "Okay, there's a better way to build and we should have our eyes on how to do that." We should work with financing parties and policy makers and communities to make sure that we are leading a more just and equitable transition, which is not only possible and the right thing to do, it is economically viable, it makes sense for everyone involved, there's no reason not to do it. And so, um, we really do help our companies to kind of achieve that in, in big ways, in small ways. Um, it's an ongoing conversation and effort, but it's one that's worthwhile, uh, to take, and we're proud to do it.

Jason Jacobs: And is this like kind of, like a mission alignment and intent filter upfront, or are there actual restrictions to protect and reinforce these outcomes on an ongoing basis? And if the latter, what form might those take?

Stephan Nicolea...: Well, remember, we're, we're on the board of our companies. We're, uh, a key partner for their early and critical development. So it's just, it's an ongoing kind of stewardship conversation guidance that we provide. But as board members and investors, you know, we want to make sure that we're heard in our efforts and that we have kind of shared principles in place. So we do, we don't necessarily screen upfront because we know that there's always gonna be work that we do together to make better, stronger businesses that show up for this work more equitably. But we do make sure that our companies align around certain principles and practices and have policies in place that mirror our own so that we're all on the same page about the efforts that we make for, uh, for inclusion and for equitable distribution and, and development.

Jason Jacobs: Uh-huh. And I would imagine that even with the best of intentions, there's situations where not being concessionary on returns and probability of success and doing right from a d- you know, diversity equity, inclusion and justice standpoint are directly aligned. And then occasionally, I could envision, but you tell me, situations might emerge where in acute specific instances, they're not aligned. Have there been examples where those situations come up? And if so, how do you work through it and determine the right path given that you're committed to both pillars and in some cases, maybe you have to choose for, for an acute decision?

Stephan Nicolea...: We're early in our development journey. Our strategy right now is, is rolling out. We have five of say, eight ish portfolio companies that we'll have in this fund. Currently in the portfolio, we're starting to commercialize those first projects. So I don't have too many examples of kind of these tougher development questions that we've had to face, but I know they're coming. We're gonna have to face a lot of these because we're in sectors like waste and energy and ag, and ultimately we're gonna have to develop in communities that will have to trust that we're going to do the right thing by them and with them and in partnership.

I think the, the key here is to always be in dialogue with the stakeholders and to make sure that we have a north star of really understanding that it's not just about the macro climate impact, it's also about the micro impact that we have at the community level. At the end of the day, we're, we are the investors and developers of real assets that exist in the real world, right? So there's no kind of like ethereal tech or, you know, some sort of consumer-facing product that is for us, often the ether and faceless. It really comes down to, to infrastructure that we can build and see and knock on and touch, and that has to exist somewhere.

And so, you know, the, the questions that will emerge are definitely gonna be around where you build. I think they're also going to be around the partners with whom you build and really thinking about, are those earnest partners in an effort to decarbonize the industries that we're looking to decarbonize? And we wanna make sure that we have value alignment with all of the stakeholders.

So we have some tough conversations ahead, but we're steadfast in both the principles that we've laid out for how we will do our work, and more importantly, have the fortitude and thankfully the capital to say no, when we need to. We're not beholden to anyone except for our LPs and so we wanna make sure that we're making the right decisions and have the ability to be strong where we need to. And when we come up against incumbent interests, which we have and will, um, we have the fortitude to be able to forge our own way and, and build and invest in a way that is just, and also profitable.

Jason Jacobs: Uh-huh. And speaking of LPs and feel free to, not to share anything you can't or don't wanna share, but what fund are you investing out of? And, and what size is it?

Stephan Nicolea...: We are investing out of our fund, which is called FullCycle climate part partners. We're in a quiet period right now. So I can't say too much about it, but we-

Jason Jacobs: Is it a fund one?

Stephan Nicolea...: It is a fund one. It has a predecessor vehicle, is a little bit of a different strategy so we're careful not to call it fund two, but it's for sure, not our first rodeo, but we are definitely doing this fund at a larger scale and doing so in a way that will unlock, say $7 to $8 billion of investible projects for our LPs. And so this is a, you know, it's a, a vehicle... At 250 million, it's a vehicle that will unlock about $8 billion of investible projects because of those rights of first refusal that we negotiate when we invest in the, in the companies.

Jason Jacobs: And when you think about LP composition, given that this is specifically not concessionary capital, how important is mission alignment in the LP base, if at all, or is it a more, more powerful, single signal to get greedy capitalist LPs to... given that you're so mission-aligned as proof that it's not concessionary capital?

Stephan Nicolea...: Yeah. I think it's important to be inclusive. And, you know, this sometimes is a little bit of a controversial way of thinking, but I don't think it should be, is there are a lot of folks who maybe just don't know, but if they did know, would make different allocation decisions. And what we see in the institutional market today is, that a lot of institutions are starting to put their climate programs together, either on the real asset side or on the venture side and are coming around to realizing, wow, there is this really beautiful intersection of the work we want to be doing and the work we should be doing, you know? So it's great to be in this world today. It wasn't always the case. And when we started building FullCycle, we were having different conversations with institutions. We're asking, "Why would we even focus on this? This is not part of our return expectations or our return program."

So, I think it's important to have value alignment to a degree. I also think it's important to include actors and players and folks who maybe haven't dipped their toe into climate, but have tremendous capital allocation capability, have tremendous operational capability and just need to be tapped to do that work with us as opposed to doing the work of kind of incumbent industry standards, you know, industry business as usual, and really bring folks along to this brave new world that is emerging, where we have the opportunity to deploy billions of dollars into sectors that are really exciting, and that folks want to be a part of.

So I think our work is more demystifying and inviting. Of course, we wanna make sure we don't partner with folks who are greenwashing and perhaps not doing the things we want to see as we have our eyes up on that, of course, but we wanna make sure to be inclusive in, in our efforts. It's gonna take a lot of hands on deck to get this work done.

Jason Jacobs: And when you go to evaluate a project, are these projects or companies as well, typically competitive? And, and if so, with what, what asset classes and what players are you running up against the most?

Stephan Nicolea...: All of the economics that we look at on a project basis, on a company basis have to be competitive. We have to be able to, to deploy the technology into markets, without concessions, without the need for subsidies, incentives. Where they exist, of course we will, we will take them and we'll work with them and build them in. But when we underwrite, we're underwriting, you know, does this work in market conditions, full stop. And that gives us an opportunity to screen out technology that maybe is just a bit too early, or maybe isn't ready for prime time and really gives us an opportunity to focus on technologies that can work in market conditions.

So, our, uh, first portfolio company Synova, is a really great example of a technology that works cost-competitively to intake many kinds of waste and in a, uh, low temperature, highly efficient process, output materials of value into existing value chains, existing industries at economics that are cost-competitive.

There's a way to do this work in such a way that doesn't rely on subsidies and incentives, and really allows for what happened to solar and wind, which in many places in the world is the cheapest power you can generate, to also be the case for that other kind of 70% of sustainable infrastructure that we talked about earlier, right? There's a way to actually bring these technologies down that cost curve, up that adoption curve and do so in a way that will transform, uh, industries and decarbonize industries and really give us a look at economics that make sense for us as investors, make sense for the operators, of course make sense for LPs as well.

Jason Jacobs: Uh-huh. And, uh, one thing I struggle with and I'd love to get your take on is just, no matter what the solution is, nothing is truly clean. Everything has unintended consequences. So it's kind of like, you want something that's, it's less bad because everything is bad. Urban living has some, you know, negative unintended consequences, rural living has negative unintended consequences. You pick a thing and it's got unintended consequences. And, and so how do you think about that?

I'll, I'll give you an example. Like you talked about in a, a previous discussion, natural gas and how, you know, putting those plants in communities can bring harm. At the same time, there's energy poverty, and over a billion people without basic electricity. You know, do you plug the methane leaks in that natural gas or you, do you try to get off of it as quickly as possible? Like how do you... And I mean, this is less of a, of a FullCycle investment thesis question and more of a theory of change question. How do you balance those? How do you think about that?

Stephan Nicolea...: As a theory of change question, so again, strong opinions loosely held, right? We're gonna need to really understand the most effective and efficient transition away from fossil fuels. At the same time, understanding that we're going to need fossil fuels to drive a low-carbon transition. So in a perfect world, we are only using those fossil fuels to the d- to the degree at which we can then as rapidly as possible, scale up renewables, and then get off, get off the tap. That's obviously not gonna happen as effectively as possible because we live in the world and, you know, there's a lot of, uh, competing interests.

But as a theory of change, it really is one to say, what is the fastest way we get to net zero? And what's the cost, as you mentioned earlier, of the technologies that sometimes get pinned as a panacea, as a silver bullet? Let's talk a little bit, as an example, about electrification, right? I mean, there's a lot, a lot of energy coming into the realm of electrifying fleets and transport. And all of that's all well and good, but the reality of it is, that we don't have the resources to do a fraction of a fully electrified world. We don't have the cobalt, the copper, the rare earth minerals, the graphite, the lithium. And to get all of that, will cost us so much in emissions that it's not worth it.

Jason Jacobs: Not only that, that's actually a great example. Like what about are those metals being mined ethically, as an example, and, and is the labor being treated justly and things like that. So how do you wait? So do we stay on coal or do we mine lithium in ways that aren't ethical?

Stephan Nicolea...: It is a good question. There's a couple pillars here. One is, it invites a clearer understanding of the kinds of innovation that we're gonna need to scale as fast as possible. So a good example in this example is, the rest of the value chain around electrification, specifically around end of life and recycling is, probably the most important piece of the value chain we could be building to be ready for the influx of batteries that are defunct, that are malfunctional, that are a- at their end of life, but could be recycled. And so we see a lot of innovation happening. There's companies that we love. We love the teams that, uh, at Li-Cycle and at Redwood Materials and other firms that are doing this work. But in electrification, in particular, I think it's about 80, 85% of that value chain is not yet built [laugh], right?

So, we have a lot of work to do to make the electrification story one that is truly about a transition moment and really one that doesn't cost us more in emissions than it is seeking to save. And right now, most folks either don't know this, or don't want to hear this, but the electric car you just bought, isn't gonna pay itself back in terms of the emissions it took to build it, probably for 40 or 50 years.

So, it's necessary technology. We do have to get off fossil fuels. We should not be burning coal, uh, where we don't have to. And we really should be leading a transition, but transitions have chapters and moments that don't always look the same as you go along. So I want to be mindful of that as we talk about these things that, you know, whilst we wait for and develop certain innovations, those innovations will disrupt the very technologies that we are disrupting current industries with, right?

Electrification will be disrupted by hydrogen. It'll be s- disrupted by technologies around nuclear and, and other base load power solutions. There's gonna be a lot that disrupts this space, but for now, it's what we've got. And so we have to start thinking about how we build out the value chain to support, as you mentioned, electrification, that is not only cleaner, but more just, that is more mindful of its waste and the implications of not building battery technology and electri- electrification infrastructure sustainably. And more importantly, you know, I think the trajectory that we're on will necessitate us to constantly, constantly be disrupting our own ways of thinking so that we are constantly commercializing technologies that are ready for market and can start to ameliorate some of these issues that are just germane to innovation at scale at pace.

Jason Jacobs: So, have a quick punch list of things I'd love to run through and just get your take on kind of rapid fire if that's okay?

Stephan Nicolea...: [laughs]. Hmm. Sure. Yeah.

Jason Jacobs: Carbon removal.

Stephan Nicolea...: Ooh. That's not gonna be a short one. Carbon removal, really important. Every plan that came out of Glasgow on the country basis for industries in particular, we're gonna have to pull greenhouse gases out of the air and store 'em permanently. I think it is a sector still finding its way. I think a lot of the technologies that are being commercialized are still too early and not ready for commercialization. I think we have not right-sized the amount of capital coming in to commercialize certain kinds of carbon capture technologies over really boring technologies that are more effective at either reverting emissions or drawing them down naturally.

So, all of that said, it is technology that will have to continue to evolve and will be necessary for our net zero ambitions. So we're gonna have to get it right. So that means we have to be pouring innovation capital into technologies, for instance, that can be highly effective at drawing down and storing methane in particular.

So again, thinking about some of these higher impact molecules starts to give us a little bit of a lens as to where we should and could be focusing our time for the highest impact per dollar invested. And when you think about methane on a 20-year basis, even methane on a 10-year basis, you're talking about such a high impact that the economics of drawing it down, the energy spend of drawing it down... Methane is a wily little molecule that lingers high in the atmosphere. It's really hard to capture, but it's worth it to do it because of that outsized warming effect that it has on our climate.

And so carbon capture, worth the effort, still needs development and is getting too much commercialized capital at the expense of technologies that would do a better job in this current moment. When that changes, obviously we'll have a different conversation about carbon capture and we'll have a different, we'll have different technologies to scale that will be more effective at doing it at economics at work.

Jason Jacobs: What role should the big oil majors play in the clean energy transition, if any?

Stephan Nicolea...: Full transition from their current business models [laughs], right, and the directive to only build and utilize their infrastructure for the development of clean renewables infrastructure that will replace the oil and gas infrastructure that, that exists today. The opportunity to participate with not just capital, but with the engineering and institutional knowledge of how you build the way they've built that infrastructure over 60 years, for the uses of renewable technology, renewable energy.

So, here I'm a little bit of a, of a radical thinker because I think that if we don't charge the fossil fuel industry with being a core and critical and earnest participant in a low-carbon transition, we end up with things like enhanced oil recovery. The idea that you pull carbon outta the air, pump it into the ground to frack more natural gas and pull that out of the air, uh, pull that out the ground to refine it, transport it, liquefy it, and eventually combust it, all of which emits horrible amounts of methane and, and other greenhouse gases along the way in this kind of funk- funky math equation that doesn't make sense.

So, I think here's an industry that needs deep stewarding for a low-carbon transition, but can play a massive role in getting us up the curve in terms of understanding how you do some of these larger projects and how you start to employ and deploy the science in a way that's additive, helpful and useful for people.

Jason Jacobs: Would you accept a, an oil major as an LP and or would you invest in a company that had them on their cap table as a strategic?

Stephan Nicolea...: We would invest in a company that had them on their cap table as a strategic, but mostly because we know what it takes... Well, we, rather we know our role with our companies and we know that we can steward their growth and development in a way that is equitable, just and that we want to see.

Would we accept an oil major as an LP? If their capital was an earnest effort to s- to lead away from the highly extractive, highly emissions-intensive business that they're in, sure. You've got a lot of capital. We're doing the work. Your capital helps us do the work that undoes a lot of the harm that your existing business has done. Sure, we'll accept that capital. But if it's just, "Hey, we want to achieve a financial return and we think you're gonna help us do that," it's probably a different conversation and, and one that we're less inclined to have.

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